What markets do you consider to be the most promising?

[Greg R.]

This is a very subjective question, but I'd like to know which markets you think are going to prosper the most in the future. There are no right or wrong answers, just curious which markets you're betting on to see significant price and rental growth in the future. 

[James Hamling]

@Greg R. you specified "significant price and rental growth".    So while many are calling out many areas that there is plenty of argument as "good", I don't think there necessarily meeting this criteria, namely "significant" and "growth", those 2 factors are major force factors here. 

Plowing headlong as we are into a Stagflation economic cycle, that means flat growth in economic terms. So for a market to have "significant growth" it's gotta either be (a) significantly UNDER priced at this time, lagging the overall market or (b) hold some unique attributes that will empower it to significantly out-perform and out-pace the national and regional economic performance. 

Right off the bat I think we can eliminate ALL major metro-plex's in the country. Sorry DFW, that means you too. 

Yes, i see many of these holding attraction power and what-not BUT in context of "significant growth", no, these areas already had a mad-dash "gold-rush" of people and it's clearly stepped back to consolidation. Not to mention INFRASTRUCTURE, that takes years to build and prep to afford mass expansion and growth. It does not seem probable to forecast DFW having another 20% appreciation in a year, it's simply not realistic. 

All this STRONGLY directs a focus to Satellite Markets. 

What's a Satellite Market you say. Well, let's use my own back-yard. We have the Twin Cities market, which is the main metro-plex, Minneapolis Saint Paul and surrounding suburbs. ALTHOUGH that is just the "main" metro-plex. We also have the Saint Cloud metro-plex which is a satellite Market too the main Twin Cities market. It's a distinctly separate market, but in close radius to the main, feeds off of, and works in a relationship there of. 

Now the neat thing about Satellite Markets is they rather reliably have this lagging effect, trailing there main primary markets by about 18-24 mnths. Again, Saint Cloud as an example. Were in the Twin Cities the "new norm" for median home values is $350k'ish, in the Saint Cloud market one can readily pick-up places in the $225k-$250k'ish range. 

Now keep in mind, NEW INVENTORY costs, this is of paramount importance. This Satellite Market of Saint Cloud, inventory is tradding BELOW replacement cost values. See, while the economic trends take time to wash-across markets, BUILDING COSTS don't, the hit rather universally. So int he main market of Twin Cities, we see this fully realized in the market pricing of existing stock, the fact that all but ANY new home costs minimum $350k+, because they cost all but universally $300k+ to build. BUT in that satellite market, it's now into REVERSE BUBBLE territory, were existing inventory is moving BELOW reproduction/replacement costs. That's is a simple mathematical setup that tells one without doubt, a SIGNIFICANT INCREASE in unit costs is coming. 

So the last piece is WHEN. Is it in 3 months, 3 years, 3 decades, when? For that, we simply let the data tell us. We look at current inventory trends, this does not tell us when BUT it does tell us velocity, direction, and magnitude or easier said VECTORING. Next we look at demographics data to tell us how many MORE units could be in that market that could be coming into transactional inventory. We look for the shift in home owner age getting younger and younger. We can safely assume those of senior age, those are probably "coming soon" inventory. And when we see all the above factors AND this "coming soon" pool drying up "POW" it's magic hour!

With this we know a time of reckoning is coming. Because there is market vectoring, and a depleting inventory that will force a shift of pricing basis more and more into the pricing basis of the new built, which we know from data is a ____% step up from current. 

As for rental prices, they are pegged by unit costs. This force factor pulls up the rental prices. Some incorrectly believe it is median income that does, no, it does not, median income simply gives affordability which impacts pool and gives economic basis but it is the unit costs that lead the gravity of pricing directions. 

Keep in mind worker conversations, they go to there boss and say "I need ___$ raise BECAUSE all my costs are now going up ___$". So wage increases are a REACTIONARY not PROactionary force. Which as that takes hold will greater invigorate the pricing ascension. 

Ok, wow, I think I gave up WAYYYyyy too much of my "secret sauce" here. This is a crash-course in market analysis to identify markets of opportunity. Notice, there is little to no gut-feel, it's data driven. 

So the short answer, Satellite markets.